The Great Slow Motion Market Disruption in Home Security

This past week, a little known DIY security company Korner got a funding round, underscoring the growing interest among angels and VCs in a trend I’ve been writing about for over the past year, that of the reinvention of the home security business.

But while much of the focus is on these newer “security light” solutions that are based on low-cost DIY smart home hardware, the actual reinvention of the home security market has been happening, in slow motion, for some time.

In fact, the traditional model has been under attack for close to a decade from companies like Alarm.com and Icontrol, who power newer market entrants from Frontpoint to Comcast, while companies like Vivint and Simplisafe challenge the old way of doing things with new business models.

First off, let’s briefly examine the technology reasons why new approaches have been made possible in the last few years:

Cloud - the movement of intelligence away from the premise to the cloud is enabling lower costs. New cloud-centric PaaS providers like Icontrol, Alarm.com and more recently Zonoff/Greenwave have accelerated this trend.

More advanced, integrated home security control panels like those from 2Gig that incorporate cellular, local wireless and access to cloud-based backends for interactive services.

Sensors, etc - just generally, the advance is sensors, radio interfaces, etc have lowered costs and helped enable self-install systems around standard-based technologies.

All of these new advances have enabled companies to try new business models. Alarm.com and Icontrol have positioned themselves as PaaS providers to enable a new class of service providers. For Icontrol it was cable MSOs, for Alarm.com it was a variety of security service providers looking to move away from expensive and proprietary premise home security solutions.

Alarm.com has probably had the biggest influence in this space, enabling a new wave of security service providers like Frontpoint, who a tight integration with Alarm.com as a way to create an offering that is lower cost, self-installable and - most importantly - enables a quicker amortization of costs which in turn allows for shorter or no-contracts.

It can’t be understated how disruptive this move away from the traditional “heavy” install model of older security companies is. Self-install, cellular monitoring and heavy emphasis on cloud-enabled smart home translates to lower costs, shorter contracts, and more consumer flexibility in terms of equipment portability, all of which hits the primary complaints of ‘heavy security’ head on.

At the same time, these same factors enable security service providers to get to profitability faster than traditional providers, in large part because these traditional providers and their professional install model often doesn't fully amortize the cost of consumer acquisition until thirty to thirty six months into a contract.

But what about churn, you ask? Sure, with shorter contracts there’s the chance the company could see faster churn, but sources tell me that’s not the case, as companies like Frontpoint experience lower than average churn rates despite the fact consumers are free to leave quicker. While it's hard to determine why, the addition of more “gee-whiz” features powered by smart home/home automation could be a significant contributor to consumer satisfaction.

Icontrol, for its part, has been riding the brute force marketing and consumer-touch power of US cable MSOs, who by and large have centralized on Icontrol's platform (for now). While the cable MSOs haven’t (thus far, at least - we know they hate truck rolls) moved to self-install, I think that they’re exploring this option, and I could envision cable delivered home security looking more and more like the self-installed monitored security today we see from those providers using Alarm.com or even something like Simplisafe.

So while most of the focus on the tech blogosphere has been on the pure DIY smart home “light security” plays like Korner, Canary, and others, don’t think the great slow motion market disruption of the home security space started in the last year or so. It’s been going on for most of the last decade, and we’re to the point where even traditional market players realize they need to adjust (as this week’s acquisition of Livewatch by Monitronics shows).

I can envision a home security market in 5-10 years where the vast majority of new users are self-installed and likely plugging into a call-center monitor solution with a cloud-backend. It just makes sense. The economics of these newer offerings are cheaper, more flexible and will expand the market, all of which will help service providers get into the black much faster than today’s legacy model.

I agree with your premise. I predict a feature battle among the players. From my perspective I see a transition from just security/safety to health and quality of life benefits. For SPEC Sensors this means moving from Carbon Monoxide and Smoke/fire detectors to air quality, smell removal, and detecting before food starts burning; all health and quality of life issues…unless your cooking blackened chicken.